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Interview: Mohaddes elaborates on National Iranian Oil Company exploration projects

Source: Iran Energy Focus

With nearly 17 per cent of the world's gas reserves and 9 per cent of its oil reserves, Iran lays claim to a large number of untapped and unexplored oil and gas fields, which have the potential to attract international oil companies (IOC) to the country. In its new year budget law, approved in February, Iran tried to give an incentive to oil exploration by offering development projects to contractors that successfully carry out exploration of a given area.
This plus a new round of Persian Gulf exploration projects are among the topics that Iran Energy Focus explores in an interview this month with National Iranian Oil Company (NIOC) exploration director Seyed Mahmoud Mohaddes. Mohaddes is a leading technocrat in the NIOC and has successfully secured the involvement of a number of foreign oil companies in exploration activities in Iran. He holds a BSc in Mines and Engineering from Tehran Polytechnic University (1979) and has been a part of Iran's oil apparatus since 1982. During 1993-97 he served as deputy director of exploration at NIOC and took over the directorship in 1997.
Iran Energy Focus: Could you please tell our readers more about the current exploration projects underway in Iran?
Mohaddes: For the time being, we have three types of exploration projects. The first type is carried out in full B financed, designed, and operated B by our own in-house teams at the Exploration Directorate.
The second type is what we call a "joint study" project. In this type of project directorate staff and foreign companies team up to work on a defined block and carry out various geological and geophysical studies. We usually agree to pay for the local currency expenses of the project, while the foreign side pays the hard currency costs.
Fortunately, we have had successful cooperation with foreign companies in these types of projects. We had cooperation with Norsk Hydro in Abadan Plain, and with TFE, OMV, Edison Gas, Statoil, and Repsol in the Persian Gulf and the Sea of Oman. We also had a number of onshore projects as well. Our exploration studies with BP have already been completed and the final report is being prepared. We also had joint exploration studies with German RWE and Australian Santos, which were aimed mainly at examining Iran's oil and gas potential.
In the third type of contract, the contractor runs the risk for exploration of a block, i.e., it funds the exploration project of the field and NIOC does not guarantee existence of oil in the block. A project of this nature will be carried out in an area where the probability of finding oil is very high.
Five contracts of this type have been concluded thus far. Norsk Hydro is exploring Anaran block west Iran, OMV is working on Mehr block southwest Iran, Edison and its partners are studying Munir block in southwest Iran, Chinese Sinopec is exploring Zavareh Kashan block in central Iran, and an India consortium of ONGC is exploring the offshore Farsi block.
As for our own activities, we have six drilling rigs for exploration and plan to drill eight to ten exploration wells a year. We have already secured contractors for our different seismic studies, including a 3D seismic in Azadegan-Kushk and one in Abadan Plain. We had a joint study with Norsk Hydro in Abadan Plain, but we came to the conclusion that the area needed further seismic exploration and we are shooting a new seismic study in a vast area of 4,300 kilometres in the Abadan Plain. We also have two projects in hand in the mountainous areas of Kazeroun and Tang-e Bijar.
IEF: Let us move to a recent call for tender for exploration of eight blocks in the Persian Gulf. Does this round of tenders follow your Persian Carpet 2D studies, or is it of a different nature?
Mohaddes: In the past years, we had sporadic seismic studies in the Persian Gulf area and we needed a comprehensive study of the area. So we planned a 2D seismic project called PC 2000 and the contractor [Norway's GGS] later agreed to extend it to the Sea of Oman.
The area covered 105,000 kilometres, and by the end of the previous year (ended 20th March 2003) we had managed to complete at least 104,000 kilometres of the seismic study. It was a very successful project and for the first time we could cover all Persian Gulf areas, including deep-water, shallow-water, islands, and even the northern part of the Gulf.
Based on the data collected through PC 2000, we defined the so-called "joint studies" with foreign firms. We covered the Sea of Oman and Hormuz Strait in a joint study with Statoil and had cooperation with Repsol, OMV, and Norsk Hydro for Persian Gulf studies. Along with these projects, the Exploration Directorate formed its own working group to analyse the data with a look at not only the bending structures but also the stratigraphic traps.
These joint studies suggested that new exploration projects could be carried out in the Persian Gulf. Based on the results we divided the region into eight blocks for the first round of exploration projects: Bushehr (8,960 km2), Iran Mehr (6,004 km2), Dayyer (8,326 km2), Hamoun (7,774 km2), Alvand (9,776 km2), Forouz (8,633 km2), Tousan (6,321 km2), and Larak (4,920 km2).
So far, Norwegian Hydro Zagros, Italian Edison Gas, Spanish Repsol, Austrian OMV, Vietnamese PIDC, Thai PTT, Malaysian Petronas, Brazilian Petrobras, and Italian Agip Iran have bought the tender documents and there's still room for other companies to buy the documents. The deadline for submission of bids is 26th May.
IEF: We have heard that the tender has not been attractive enough. How, in your opinion, was the response to the tender?
Mohaddes: Well, at this stage, gauging by the number of tender documents purchased, we have received a good response. A lot of companies have bought the documents. How many of those are actually going to go out and bid on the tender is something altogether different.
As you know companies are not very much interested in exploration projects in isolation and want the exploration plus the development project together. Unlike many other countries, where the projects are awarded in PSA schemes or service contracts, Iran has limitations in offering lucrative contracts, especially in the Persian Gulf.
IEF: Speaking about exploration/development contracts, we had a recent budget approval in that respect. Talking to the Majlis Energy Commission chairman we learned that Iran would focus mainly on its border-straddling fields. The managing director of NIOC, however, said in a March interview that central areas would be prioritised in the exploration activities of Iran. Could you please clarify these two seemingly contradictory statements?
Mohaddes: In order to cover all the sedimentary fields of Iran, we need to extend the coverage of our exploration activities to the whole of the country. Up until now, we have been concentrating our activities in the oil-rich area of the Persian Gulf and the provinces of Ilam, Kohkilouyeh-Boyerahmad, Khuzestan, and Bushehr. Needless to say there is still plenty of oil waiting to be found in these areas. Because we have not embarked on any form of advanced exploration activity in some parts of the country, however, particularly those with high levels of poverty, we thought it prudent and beneficial to adopt a more encouraging scheme for exploration activities in these areas. In the budget bill, the Majlis therefore authorised us to offer exploration and development contracts across Iran that fall outside the regions of the Persian Gulf and the provinces of Ilam, Kohkilouyeh-Boyerahmad, Khuzestan, and Bushehr. These contracts can serves as both an attractive incentive for foreign companies and a means of accelerating economic development in the intended areas.
IEF: Where would you focus your activities, on the border areas or on the central parts of the country?
Mohaddes: We have defined about 50 blocks for exploration but will definitely need to prioritise them and offer them in a series of different tenders. Border areas will be our first priority, but this does not mean that a region in central Iran in desperate need of oil and gas would be dropped from our priority list. For us all parts of the country are important, including Sistan-Baluchestan, Mokran, Moghan, and so forth. So for the time being we are studying these blocks and ranking them for the first round of tenders.
IEF: Back to our previous question about the exploration/development awards, does this new law apply to exploration contracts already signed?
Mohaddes: No. This law does not apply to these contracts. We believe that the explorer of a field can submit the best bids from both a financial and a technical perspective since they have been intimately involved in the exploration process. If the contractor fails to win the tender, however, we grant them a 30 per cent share in development projects as the "explorer share."
IEF: Let us suppose a case in which an exploration contractor successfully carries out its duties and finds oil in the block. Will NIOC immediately sign a buy-back deal with the contractor or will Iran consider its OPEC constraints and quotas for development of the field?
Mohaddes: There are many factors involved in our decision-making process. One of the reasons why we are delaying the offer of the blocks is in fact to study all aspects of the project, including the issues you pointed out.
We want to offer blocks that have high chances of oil and are also located in the areas where there's a need for production of the oil. If we manage to find a gas field in Sistan-Baluchstan, for example, we will not hesitate to award the contract to tap into the reserves as soon as possible.
IEF: So, when do you think you will put on tender the 50 defined blocks? How many of blocks are you going to offer in your first round?
Mohaddes: We hope to make the first offer in four or five months, but the number of blocks is not yet determined.
IEF: Do you hope to close a deal by the end of the current Iranian year (March 2003-March 2004)?
Mohaddes: Well, I don't know. We hope to collect the bids two or three months before year end and if we manage to shorten our negotiations with the companies we will get close to a deal by the end of the year.
IEF: As you mentioned earlier, exploration projects are not naturally attractive to foreign companies. Does the Exploration Directorate have any plans to make the projects more attractive?
Mohaddes: We have always tried to accept the reality. We know that companies want long-term activities in a country and that is why we have initiated the "explorer share" in our contracts. As I said before, the 30 per cent share is a part of our plans in the five exceptional areas and the new exploration/development scheme is set for other parts of the country. We believe that these measures will give a better incentive to bidders, and I have to point out again that all the exploration projects we have offered so far have had a high chance of oil discovery.
IEF: What role do you think local companies can play in these exploration projects? Do you think they can have an active participation or not?
Mohaddes: In our recent tenders we invited both Iranian and foreign companies, and the criterion for ultimately choosing the contractor was the approval of our technical committee. But we all know that exploration projects carry high risks and local companies frequently lack sufficient financial backing. No Iranian company has so far expressed interest in the eight blocks on offer and I think that is because they are not particularly aware of the mechanisms involved in agreements of this nature and they lack solid financial backgrounds. But I have to point out that even foreign contractors will have a major part of their activities done by domestic service companies.
IEF: What type of companies do you prefer to work with? We have been hearing that Iran is more interested in working with medium-sized companies rather than oil giants. Is that true?
Mohaddes: No, we have no limitation as such. We want to cooperate with any company with approved technical abilities. But big companies look for big contracts. Exploration projects are usually in the range of $70-$100 million and are not interesting to giant companies. And of course, big companies usually cost more than smaller ones.
IEF: We have been told that Iran has never gone for gas exploration projects, and all its discovered gas fields were found during the search for oil. Do you have any plans for gas discovery?
Mohaddes: Our priority is with oil and that is mainly because of its important features and also our large gas reserves already in hand.
IEF: As our last question, what plans do you have for the Caspian Sea oil?
Mohaddes: We had joint studies with Shell, Lasmo, and Veba and we carried out 2D seismic on the sea. We are now expecting to kick off our 3D seismic within two months. We are also improving our technical capabilities for drilling in the deep waters of Caspian, our logistic vessels are being built, and our semi-submersible rig is being constructed. We hope to start drilling by the end of the next Iranian year (March 2004-March 2005).
IEF: Thank you very much.

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